You can’t start saving for retirement too early. As soon as you have income from work, open a retirement plan and make a deposit. As an example, one of the best gifts you can give your teen when she starts her first job is to open a Roth IRA for her. The money she deposits doesn’t need to be the actual dollars she earns if her budget is maxed out paying for car, insurance, or other expenses. You can give her the money for the Roth IRA, up to the maximum for the year or her gross earnings, whichever is less.

Starting to save early for retirement captures the amazing power of compound interest and can make a small amount grow very quickly and very large. To see how this works, let’s imagine that you deposited $2,000 in a Roth IRA account each year for 11 years starting when you were age 25 and ending when you were 35. A friend, the same age as you, decided to delay the start of her saving until she was age 35, then started depositing the same $2,000 per year and continued to invest that money for 21 years through age 55. You each earned 5 percent interest. When you both turn 55, despite having deposited only half what she did, your account is still larger than hers, thanks to compound interest. Following is how your accounts would turn out.

Power of Compound Interest at 5%

Your friend deposited $42,000 but only had time to earn $29,439 in interest. Since you started earlier, you only had to deposit $22,000 to earn a whopping $53,390 in interest. Compounding really helped you.

The secret of compound interest is that each year’s interest on your savings is added to the principal, thereby generating still more interest of its own. The cumulative effect is powerful.